Malta

INTRODUCTION AND BASIS OF TAXATION

A company which is incorporated in Malta is considered to be ordinarily resident and domiciled in Malta. Consequently, this company is subject to Maltese corporate taxation on its worldwide income at the standard rate of 35%. Since Malta adopts the full imputation system of taxation, when the dividends are paid to the shareholder there is a tax credit which is equal to the tax paid by the company on its profits. Since the highest tax rate for individuals is equal to the corporate tax rate in Malta, the full imputation system ensures that the shareholder is not subject to any further tax on dividends distributed to them from the Maltese company. According to tax legislation, the taxable base of a company depends on whether such company is resident and/or domiciled in Malta - permutations of which have different tax implications.

TAX ACCOUNTS AND REFUNDS

Malta has adopted a system of tax accounts. According to this system, profits are allocated to a series of taxed accounts, which are the following:

Final Taxed Account

Immovable Property Account

Foreign Income Account

Maltese Taxed Account

Untaxed Account

Depending on how the profit is allocated, one can be entitled to a refund. Not every account attracts a refund, and the amount of the refund varies from one taxed account to another. The following is a list of refunds available:

6/7ths refund - This refund is normally due on profits earned from trading activities. This refund results in an effective rate of tax of 5%.

5/7ths refund - This refund is normally due in respect of income derived from passive interest and royalties. This refund results in an effective rate of tax of 10%.

100% refund - this applies for profits derived from a participating holding. This can be taken either in the form of a refund, or in the form of an exemption. Further detail about this refund/exemption can be found below.

2/3rds refund - This applies to foreign passive income upon which double taxation relief has been claimed.

A Participation Holding can either be exempted (it claims a "participation exemption") or it can opt not to be exempted, but then later claim a 100% refund of tax. This exemption is aimed at income and/or capital gains, and exempts such income/capital gains which are derived by a company registered in Malta, which in its turn it derives from a company which is not resident in Malta.

... in a nutshell

Malta has one of the lowest tax rates within the European Union. It is fully compliant with OECD requirements, and is a white listed jurisdiction. The system of refunds described on this page has also been approved by the European Commission. Due to the full imputation system of taxation and ensuing refunds, a Malta company after paying a tax rate of 35% can enjoy an effective tax rate of between 0% to 10%, depending on the circumstances. Shipping companies are exempt from tax.

Moreover, Malta has negotiated numerous double taxation agreements with many countries. Clicking on the link below will direct you to the webpage of the Malta Financial Services Authority containing a list of all the treaties

We invite you to explore the beneficial tax system Malta offers. Do not hesitate to contact us in case of any difficulty.

Elimination of Double Taxation

There are four ways by which double taxation is eliminated in Maltese law:

Double taxation relief as provided by Malta's double tax agreements.

Unilateral relief: this, as the name suggests, is granted unilaterally when there isn't a double tax treaty available.

Commonwealth relief: this is in respect of any income tax charged under any law in a Commonwealth country (not including Malta and the United Kingdom), if the law of such Commonwealth country has provided for relief in respect of tax charged on income both in that Country and in Malta.

Flat-rate foreign tax credit: a tax credit for tax which would be deemed to have been suffered abroad.